US Fed holds rates unchanged again

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Fundamental outlook  

US’ growth rate remained sluggish as consumer demand stayed weak. Global focus has been on the central bank’s meeting held last week but Fed announced it has retained its rates direction. Japan also held on to same monetary policy despite the yen’s stalled devaluation. European economy receded with Germany and UK slowing down.

US retail sales grew 0.2 per cent in August, lower than the 0.7 per cent gains in July. Core retail sales, excluding automobiles, gained 0.1 per cent after it receded from the revised 0.6 per cent in the previous month.

In another report, US industrial production, which includes mining and utilities, dropped 0.4 per cent in August after a 0.9 per cent rise in July. Building permits in August grew 1.17 million, higher than the revised 1.13 million in July.

US jobless claims for the week ended September 12 was at 264,000, a drop from 275,000 in the previous week. The Philadelphia Fed manufacturing index dropped to minus six reading in August, below the positive 8.3 in July. Manufacturing and consumer demands dragged growth despite the stabilised job markets.

In the US Federal Open Market Committee meeting held last Thursday, chairperson Janet Yellen announced that the Fed will retain its monetary policy and interest rates would remain.

The outcome surprised many market analyst as there has been high debates of a possible rate tightening in September.

Japan’s trade deficits was at 360 billion yen, down from 380 billion yen trade gap in July. Yen stayed stagnated at 1,020 regions for many months while investors are waiting for more monetary actions from the Bank of Japan.

Bank of Japan had also held its monetary policy last week but emphasized that they would maintain the expansion of its monetary base at 80 trillion yen (US$664 billion) annually. Bank governor Kuroda warned of slowing exports and contracting demands from emerging markets.

German ZEW economic sentiment that measures investors’ confidence, rose to 33.3, receding from July’s 47.6. Trade balance in the eurozone grew 22.4 billion euros surplus, better than median forecast.

UK consumer prices stayed unchanged in August on a yearly basis. Producer prices on monthly output slid 0.4 per cent, worse than negative 0.1 per cent in July. Separately, retail sales was up 0.2 per cent in August similar to in July.

 

Technical forecast  

US dollar/Japanese yen has been hovering around 120 regions with the potential to drive either way. This week, we shall place the support and resistance at 118.5 and 121 respectively while observing the breakaway in either direction. The week-chart suggest weakness in the market trend that might fall in coming weeks.

Euro/US dollar traded in sideways last week and closed at 1.13 regions for the weekend. Technically, we reckoned a very tight range will trap the market in the 1.1 to 1.14 range but the trend seemed like it would fall soon. Pay close attention to fundamental factors since Greece will be forming a new government after the election. Risk control is necessary if the trend moves against you.

British pound/US dollar traded slightly firm last week and closed at a near EMA200 average line. The market is likely to trade from 1.535 to 1.555 regions in the coming week, depending on fundamental leads. The direction is hard to predict as price swings have become irregular lately in the market. Only breaking beyond the aforementioned range will confirm a new trend.

 

Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is a registered fund manager in Singapore with 26 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected].